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    "# Rolling Regression\n",
    "\n",
    "Rolling OLS applies OLS across a fixed windows of observations and then rolls \n",
    "(moves or slides) the window across the data set. They key parameter is `window` \n",
    "which determines the number of observations used in each OLS regression. By \n",
    "default, `RollingOLS` drops missing values in the window and so will estimate \n",
    "the model using the available data points.\n",
    "\n",
    "Estimated values are aligned so that models estimated using data points \n",
    "$i, i+1, ... i+window$ are stored in location $i+window$. \n",
    "\n",
    "Start by importing the modules that are used in this notebook."
   ]
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   "source": [
    "import pandas_datareader as pdr\n",
    "import pandas as pd\n",
    "import statsmodels.api as sm\n",
    "from statsmodels.regression.rolling import RollingOLS\n",
    "import matplotlib.pyplot as plt\n",
    "import seaborn\n",
    "seaborn.set_style('darkgrid')\n",
    "pd.plotting.register_matplotlib_converters()\n",
    "%matplotlib inline\n"
   ]
  },
  {
   "cell_type": "markdown",
   "metadata": {
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   "source": [
    "`pandas-datareader` is used to download data from\n",
    "[Ken French's website](https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html). \n",
    "The two data sets downloaded are the 3 Fama-French factors and the 10 industry portfolios. \n",
    "Data is available from 1926. \n",
    "\n",
    "The data are monthly returns for the factors or industry portfolios."
   ]
  },
  {
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   "source": [
    "factors = pdr.get_data_famafrench('F-F_Research_Data_Factors', start='1-1-1926')[0]\n",
    "print(factors.head())\n",
    "industries = pdr.get_data_famafrench('10_Industry_Portfolios', start='1-1-1926')[0]\n",
    "print(industries.head())"
   ]
  },
  {
   "cell_type": "markdown",
   "metadata": {
    "pycharm": {
     "name": "#%% md\n"
    }
   },
   "source": [
    "The first model estimated is a rolling version of the CAP-M that regresses\n",
    "the excess return on Technology sector firms on the excess return on the market.\n",
    "\n",
    "The window is 60 months, and so results are available after the first 60 (`window`) \n",
    "months. The first 59 (`window - 1`) estimates are all `nan` filled."
   ]
  },
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   "source": [
    "endog = industries.HiTec - factors.RF.values\n",
    "exog = sm.add_constant(factors['Mkt-RF'])\n",
    "rols = RollingOLS(endog, exog, window=60)\n",
    "rres = rols.fit()\n",
    "params = rres.params\n",
    "print(params.head())\n",
    "print(params.tail())"
   ]
  },
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   "cell_type": "markdown",
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     "name": "#%% md\n"
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   "source": [
    "We next plot the market loading along with a 95% point-wise confidence interval.\n",
    "The `alpha=False` omits the constant column, if present.  "
   ]
  },
  {
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   "execution_count": null,
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   "outputs": [],
   "source": [
    "fig = rres.plot_recursive_coefficient(variables=['Mkt-RF'], figsize=(14,6))"
   ]
  },
  {
   "cell_type": "markdown",
   "metadata": {},
   "source": [
    "Next, the model is expanded to include all three factors, the excess market, the size factor\n",
    "and the value factor. "
   ]
  },
  {
   "cell_type": "code",
   "execution_count": null,
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   "source": [
    "exog_vars = ['Mkt-RF', 'SMB', 'HML']\n",
    "exog = sm.add_constant(factors[exog_vars])\n",
    "rols = RollingOLS(endog, exog, window=60)\n",
    "rres = rols.fit()\n",
    "fig = rres.plot_recursive_coefficient(variables=exog_vars, figsize=(14,18))"
   ]
  },
  {
   "cell_type": "markdown",
   "metadata": {},
   "source": [
    "## Formulas\n",
    "\n",
    "`RollingOLS` and `RollingWLS` both support model specification using the formula interface. The example below is equivalent to the 3-factor model estimated previously. Note that one variable is renamed to have a valid Python variable name."
   ]
  },
  {
   "cell_type": "code",
   "execution_count": null,
   "metadata": {},
   "outputs": [],
   "source": [
    "joined = pd.concat([factors, industries], axis=1)\n",
    "joined['Mkt_RF'] = joined['Mkt-RF']\n",
    "mod = RollingOLS.from_formula('HiTec ~ Mkt_RF + SMB + HML', data=joined, window=60)\n",
    "rres = mod.fit()\n",
    "print(rres.params.tail())"
   ]
  },
  {
   "cell_type": "markdown",
   "metadata": {},
   "source": [
    "## `RollingWLS`: Rolling Weighted Least Squares \n",
    "\n",
    "The `rolling` module also provides `RollingWLS` which takes an optional `weights` input to perform rolling weighted least squares.  It produces results that match `WLS` when applied to rolling windows of data. "
   ]
  },
  {
   "cell_type": "markdown",
   "metadata": {},
   "source": [
    "## Fit Options\n",
    "\n",
    "Fit accepts other optional keywords to set the covariance estimator.  Only two estimators are supported, `'nonrobust'` (the classic OLS estimator) and `'HC0'` which is White's heteroskedasticity robust estimator.\n",
    "\n",
    "You can set `params_only=True` to only estimate the model parameters.  This is substantially faster than computing the full set of values required to perform inference. \n",
    "\n",
    "Finally, the parameter `reset` can be set to a positive integer to control estimation error in very long samples. `RollingOLS` avoids the full matrix product when rolling by only adding the most recent observation and removing the dropped observation as it rolls through the sample. Setting `reset` uses the full inner product every `reset` periods.  In most applications this parameter can be omitted. "
   ]
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   "metadata": {
    "pycharm": {
     "is_executing": false,
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   },
   "outputs": [],
   "source": [
    "%timeit rols.fit()\n",
    "%timeit rols.fit(params_only=True)"
   ]
  }
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